According to statistics, a small business rarely lives longer than three years and the main reason is unprofitability. To make sure everything is good with your business, you need to keep tracking many key indicators that can lead to the failure of your company.
Below you can find 12 important factors that can affect the success of your business.
EBITDA shows whether your business can earn and how much money it brings(excluding interest, taxes, depreciation, and amortization). If EBITDA is positive, the business is working well. Even if you have debts or cash shortages, the business still brings money allowing you to deal with financial problems. If the indicator is zero or negative, the company is unprofitable. In this case, you should start taking action to improve your EBITDA.
It is worth monitoring the dynamics of EBITDA and striving to increase the indicator. You can do this by reducing costs, increasing marginal profit and revenue, and attracting more customers.
2. Seasonality and financial cushion for a rainy day
You need to track how profits change from month to month. Set aside money for periods of low sales to pay rent, salaries, and make the necessary purchases. Forming a financial airbag can be even better. When you don’t have funds in reserve, you risk losing your business. In this case, your business can be either closed or run into debt.
Expenses are divided into operating and investment. Investment means equipment, uniforms for employees, and repairs. Operating is rent, purchase, and salary for your team. It is important to know and plan operating expenses. Otherwise, your cash flow will go into negative territory.
It is important to understand that the business money is not yours. You cannot take $100,000 from the business account for a new car or other goods. It is better to save money for future spending or create a solid financial airbag. Try to optimize costs by using energy-saving bulbs and installing motion sensors to turn on and turn off the light automatically. Buy cheaper products, look for better logistics options, and save on communications.
4. Average check, conversion, number of units in a check
This data shows the dynamics of sales at any period of sale. Do you want your business to exist and develop successfully? Learn how it works. By increasing the indicators, you can significantly increase the profit of your business. Perhaps there are several directions where your company can grow, but you don’t know them, because you don’t track the analytics.
For example, the number of units in a check shows how many items one customer buys on average. If this indicator is equal to one, work on improving additional sales. You may consider special training for employees or change the product layout. Place the sunglasses on a prominent place in sunny weather and umbrellas during the rainy season.
Besides, be sure to keep tracking the conversion. This indicator shows how many customers choose your company and did not leave for competitors. Compare indicators from month to month and analyze the results. This will understand better how your business works.
5. ROI of an advertising campaign
Many entrepreneurs invest in advertising without tracking any data. As a result, decent sums are wasted without any positive result. To avoid this, you need to monitor the ROI of the advertising campaign and place ads on the relevant sites. ROI is the return on investment. It shows how much profit you get on one dollar invested.
There is no point in placing a huge banner if you have a home bakery. Better to channel this budget towards targeted ads and show your ad to your target audience.
6. Customer reviews on social media
Over 62% of people trust online reviews. Reviews create a company’s reputation and can affect the profitability of your company. Ask loyal customers to tell about your company or service on social media. Do it immediately when the person has received the service. If you have a lot of negative reviews on your social media, the business may suffer from reputation losses. Therefore, respond to customer complaints quickly and appropriately.
To keep your business working well, you need to keep an eye on your competitors. It is important to understand how they work and whether they are taking customers away from you. You can learn from your competitors’ experience, spy on cool tricks, and avoid their obvious mistakes.
There are many services that allow you to spy on competitors. For example, you can see where the traffic to the site is coming from, what queries are used to advertise competitors, and monitor their prices.
8. Competence of employees
Business directly depends on the people who work in your company. The barista should be able to brew coffee and be friendly, the sales manager should convince them to make a purchase in your store, and the manager should communicate with customers and control the work of the team. Therefore, it is important to train and control all your staff.
It’s a shame when you did everything for your client to place an order, and he goes to a competitor because of the incompetence or rudeness of your employee.
To be sure your business is doing well, you need to control your suppliers. You need to control that they do everything on time, supply you with high-quality goods, and for reasonable prices. Loyalty is nothing to do here. It is normal to always be in search of new suppliers and partnerships with more favorable and profitable conditions.
10. Changes in the laws
There are many laws and they are constantly changing. But ignorance of the laws does not absolve you from responsibility. For this reason, it is extremely important to track all changes in the laws and observe them. Otherwise, you run the risk of fines and other problems.
11. Employee workload
If you want to prevent a large turnover of the staff in your company, it is important to monitor the workload of your staff. It often happens that the more qualified the employee has more different tasks. But these tasks can often be delegated. As a result, the most valuable personnel are overworked, burned out, and get fired, while others are only half-busy and don’t improve their professional skills.
12. Delegation of tasks
The business works well if all business processes are established. This means that employees know their responsibilities, everything works like clockwork and goes according to your plan. Establishing such a precise system is the main task of an entrepreneur.
If you work 60 hours a week and realize that you lack time to complete all the tasks, assume some of your responsibilities to employees. Working in manual mode is not a good idea. You can’t go on vacation, you can’t turn off your phone at night, and you end up with neurosis.